Procurement as innovation policy and its distinguishing effects on innovative efforts of the Brazilian oil and gas suppliers

This paper aims to assess the effect of public procurement for innovation (PPI) in the Brazilian oil and gas sector on the innovative behavior of suppliers. It emphasizes the role PPI may play in developing countries due to its ability to target a wide range of firm sizes and to contribute to a more even diffusion of technical progress. Using microdata from RAIS and coarsened exact matching, results show that treated firms present on average a higher intensity of innovative efforts than the control sample. In small firms, PPI has a positive effect on the probability of carrying out innovative activities. Once small firms have decided to carry out these activities, treated and control samples have similar innovative effort intensities. The treatment’s effect on large firms’ probability of performing innovative activities is positive but lower than small firms. Nonetheless, there is a significant and positive effect on the intensity of these efforts. The paper suggests that, due to its effects over a wide range of firm sizes, PPI may be a worthwhile policy to implement for the reduction of structural heterogeneity present in developing countries.